The insolvency law in the UAE has been amended last January 2020. The new law states that an individual who is incapable of paying his debts cannot be imprisoned or fined. Instead, he will be given 3 years to settle his debt. This is good news for residents and locals.
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Previously, those who couldn’t pay for their loans faced hefty fines, charges, or even imprisonment. Now that there is a new implementation to protect individual debtors, it’s easier to manage financial life in the UAE.
In case you are looking for ideas on how you can settle your debt after applying for insolvency in the country, this article will help you out.
What are the ways to settle your debt under the insolvency law in the UAE?
Basically, there are two ways to settle your debt in the UAE if you have applied for insolvency. Once approved, the court or your lawyer will give you the option to plan to settle your financial responsibilities or through insolvency and liquidation of your funds. Let’s get more into detail to under these two ways better.
Settling your financial responsibilities
If your application for insolvency is approved, the court will designate one or more professionals to guide you through the process and make a settlement plan to pay for your financial obligations. After planning the settlement, your creditors will make a vote and the implementation of the plan will start.
Your plan for settlement can be approved or denied by the court. Everything that you decide under this circumstance is subject to a review of the court. If it finds that your settlement plan involves the following condition, it may be rejected or discontinued:
- You submit fake statements about your funds, debts, and rights.
- You do actions that damage or conceal property or part of it.
- You are not paying your loans for more than 40 successive working days after the due date of your debt. This may be because of your incapability to pay. If this case happens, you should apply for insolvency.
Insolvency and liquidation of funds
When you apply for insolvency, the first offer of the court is for you to settle your debts within 3 years. You will be given that time frame so you can keep your assets even if you have the inability to pay as of the moment. But, if you fail to cooperate and you can’t still pay, you are left with no choice but to liquidate your assets and use the funds to pay off your loans.
This second method is applicable to individuals who are not able to pay their loans for more than 50 consecutive working days after the maturity date of the loan due to financial challenges.
If you will choose this method, the court will designate a trustee to administer and manage the liquidation of your assets and funds. The court does this in order to comply with Article 8 of the new insolvency law stating that the appointment of a trustee is a must. There are also instances that your creditors may request the liquidation of your assets and funds if it will not go past beyond AED 200,000.
Under the new law, these are your options to pay for your loans. Since you can choose between the two, make sure that you are using your choices wisely. If you think that you can create an effective settlement plan, consider it before you liquidate your assets. You can also ask the advice of experts to help you with your decisions.
What are the penalties for violating the UAE insolvency law?
Once you filed for the insolvency law and you are offered methods to pay for your debts, you should be able to comply with the law and what the court is saying. If you breach the law, there are penalties that you have to watch out for.
Debtor Penalties
Causing loss to your creditors intentionally can give you a really hard time. If you are proven insolvent because of certain conditions or circumstances under the law, you will be charged AED 20,000 to AED 60,000 or be imprisoned up to 2 years. According to the law, if you are guilty of committing these actions, you will receive the penalties:
- Spending your funds in bad faith to bring financial harm and damages to your creditors while intending to delay the declaration of insolvency and liquidation of your assets and funds.
- Spending a huge amount of money to engage in a business wherein there are purchases of goods, services, and materials for the purposes of using it personally or domestically, which should be out of your reach considering your financial situation.
- Settling your debts with one creditor and causing harm and damages to other creditors within 6 months before you apply for insolvency or liquidation of your assets and funds.
- Gambling with the intention of affecting your creditors.
Creditor Penalties
Apart from debtors, creditors are also fined for violating the law. If found guilty, they may receive fines from AED 10,000 to AED 100,000 or imprisonment. According to the new law, creditors should avoid doing the following:
- Entering into an agreement with a debtor that gives them more advantage than the rest of other creditors, especially when the court already decides the liquidation of assets and funds.
- Making a fake debt claim against the debtor.
- Voting on decisions to settle the debt of the debtor although it is legally prohibited.
- Increasing the amount of the debt of the debtor illegally.
Final Thoughts
It’s good to know that the UAE has amended the insolvency law and at the same time, gives debtors the option to choose from 2 methods to settle their debt. If you currently have outstanding loans in the country and you are really stressed out because you don’t know how to pay them anymore, you might want to seek the help of the authorities now.